Archive for May 2014

Nothing is more critical to a software-as-a-service (SaaS) business than pricing strategy. Pricing is the moment of truth for a new product … and doubly so when it is a company’s first product. But far more often than not, I’ve observed new startups leaving “money on the table” when it comes to pricing enterprise products. I’ve seen founders say their product saves hundreds of thousands of dollars — yet their product is priced as if it’s only saving thousands of dollars.

One reason for this is assuming the need to price and program similarly to competitive products. With a potentially disruptive product, however, falling into the trap of pricing like a legacy competitor not only leaves money on the table — but it could fail to surface your differentiation. Said another way, your product is your price and how you price your product reflects value from the buyer perspective as well as what your company believes is valuable. SaaS products also have the advantage that they are priced not just for the service they offer, but for the potential of saving massive capex/opex spent directly by the customer.

From your business perspective, SaaS products have a level of stickiness that would be the envy of the packaged-and on-premise software generation.

Since the uncertainty and social science aspects of pricing can be uncomfortable, especially for technical founders, here is a framework — from the perspective of a product manager — to consider when pricing new SaaS products. The product manager role is critical in SaaS because the ability to fine-tune the monetization of the product is closely tied to its features and implementation. The product needs to be designed with such flexibility in mind when it comes to making features available, prioritizing features, or even just choosing where to spend engineering time.

Just remember that “business isn’t physics”, as Bill Gurley notes in his excellent post on some of the metrics here. Andreessen Horowitz also has a detailed primer on understanding SaaS valuations as great background for pricing discussions. Because pricing is math, there’s a tendency to create the spreadsheet model and assume it will all work. But there’s also a ton of psychology that comes into play: beyond math, pricing involves judgment, vision, and flexibility.

How do you solve an unsolvable problem? Bound it.

In a new business, it’s easy to spend money, but the combination of a new product and the unknown cost of acquiring customers leads to an “unsolvable” problem. One approach is to take lean/iterative methods and apply them to finding the right pricing fit. This post is about a framework to arrive at such early prices, which will change. (This is very different from what happens in an existing company with existing customers, where you really only get one shot at pricing something right).

The business side of SaaS involves a complex array of variables such as customer lifetime value (LTV), customer/subscriber acquisition cost (CAC), average revenue per user (ARPU), cost of goods sold (COGS), and churn; as well as pricing models such as freemium, tiered, and time based. Then, depending on whether you’re targeting consumers or enterprises, there are very different sales models that influence your pricing approach (for example, business products invite complexity, especially when dealing with purchasing managers). Similarly, the product side of SaaS is a complex set of equations related to usage patterns, scenarios, and variable costs of a large number of resources.

The most critical costs are related to customer acquisition and sales/marketing expense — which can appear to erase any potential for profit by traditional accounting measures — so the key to early-stage SaaS businesses is to focus on understanding customer acquisition costs relative to the estimated long term value of a customer. Since we don’t know how much it will cost to acquire a customer yet, we will just have to move forward assuming some budget (along with some allocation for margin in the ultimate price relative to this long term value). This post focuses on the pricing models relative to product and features and assumes a higher level view of customer acquisition costs and long term value.

One way to approach this is to establish upper and lower bounds on pricing:

A lower bound for your pricing

The lower bound represents your costs to serve a customer your product. One common example is the basic costs of spinning up the IaaS/PaaS elements of what you do — creating accounts, allocating minimal resources, other infrastructure, and then subsequent usage.

It might be convenient to think of this lower bound as what you could offer for “free” to some customers. You might make some assumptions about the use of variable resources such as compute, egress, storage, etc. in order to arrive at this lower bound. (Note, since this is a product-centric view these bounds are absent the allocation for fixed and variable costs outside the product/technology, so do not not include opex, S&M, etc.)

It is important to understand this bound across the full breadth of your product. While you might initially view some features as “premium”, you also want to assume that over time capabilities will migrate from advanced to essential and you will fill in new features at the top. I think it is a good exercise to consider the full product as a base case initially.

An upper bound for your pricing

The upper bound represents your costs to serve a “depth” user: in this case, the customer using the parts of your product that drive ongoing costs to scale (for example, this customer is using increasingly more bandwidth, storage, or compute). Now this is where you can look at what you offer relative to your competition, and want to understand if you have scale attributes that are better/worse/same. By knowing this you can begin to separate out variables for your model.

Presumably in developing your product, you created a unique architectural approach relative to existing competitors. Do you scale better for more tenants, use storage more effectively, or maybe your mobile app is more efficient at bandwidth? The importance of knowing your own strengths and weaknesses will inform what variables to use in your pricing.

You can also think of your upper bound as a competitive foil — the stronger you are on some attribute, the more you should use this attribute to differentiate your offering. This might allow you to charge more for capabilities that are just too expensive for your competition.

These are the core attributes for pricing

When you’re pricing a new offering, it is worth understanding where your product is today relative to a core set of potential pricing attributes.

Whether it is Bronze/Silver/Gold, Free/Select/Premium, Trial/Select/Premium, or Individual/Business/Enterprise, the norm for SaaS is to offer a “3xN” matrix of 3 pricing plans and N attributes — as inthese examples. The more mature a SaaS product, the more rows and columns its matrix has. (One SaaS product I researched had five top-level features organized into an array of 27 price points based on combinations of the three to five of the features and number of users.)

A broad range of SaaS products can be considered across the following core service attributes:

Features

If your product lends itself to dividing the features themselves — such as import/export, visualization, view/edit, or connectivity to other products — into good-better-best then differentiating price points here might work. In a freemium model, dividing must-have features among free v. paid users can be a customer-hostile way to differentiate or optimize pricing, so beware.

The reason to hesitate on this dimension is because customers understand that you’re basically just inhibiting access to code that is already there and hence being draconian. Another reason to be cautious with this model is that as usage of the product deepens over time, paid features will tend to get pulled into lower-priced tiers — which means you need to fill in new features/prices with every release or update. As easy as it is to communicate general-use features in pricing tiers, there’s a level of distaste with this approach for many customers.

Administration/IT

One of the most common approaches to differentiating a SaaS product designed for business is to separate out the IT-focused features as a pricing attribute. These could be features for security, audit, identity integration, domain names, sharing, control, management, etc. Businesses understand what it is like to both value and pay for these features.

Commonly this approach is used to rectify a product that has become viral within an enterprise, so be careful about how you approach an enterprise with pricing here. Otherwise you might come across as an arsonist-firefighter who is offering to contain the very situation you knowingly created.

Scale in consumption

Another broadly used SaaS pricing attribute is storage consumption (even for products for which storage is not a primary attribute): It’s easy to measure, easy to articulate, and is relatively expensive. The benefit of using storage is that people “get it” to some degree. It also gets cheaper faster than people can consume it (and in most scenarios customers need to be doing something fairly extreme to consume vast amounts of storage). At the same time, the platform companies have been steadily increasing free storage or ultra-low priced storage as a base, no-frills service so simply using storage as a one-dimensional offering might not work. With a new SaaS product, be sure to consider ways to avoid basing costs on storage given challenges.

One novel approach seen recently is using third-party storage and letting the customer establish a paying relationship such that storage is not part of the pricing of your product, since that way you do not serve as a pure pass-through for a visibly priced third-party element of your product. There are many novel attributes in modern software that can be used as consumption variables; one relatively new one is to use depth consumption of APIs/calls as a price tiering structure. (Box, where I’m an advisor, recently announced pricing for Box APIs as an example.) Developer-oriented products work especially well for consumption pricing because developers understand the product architecture and what can drive costs, even if those costs are variable with usage.

Scale in consumers

SaaS products used by small teams, cross-organizations, or that just scale with more members collaborating/sharing/using are almost always priced by number of unique users (and subsequent integration with organization-based directories). Pricing this variable is straightforward and over time you will see distribution of engagement and resource usage that will further let you refine the discrete price points.

Because most products priced this way also want to encourage more users/usage, carefully consider where you put the first step or two. But large-scale customers like this approach because it allows for predictable pricing on a metric they understand: number of employees/users. In general, you can think of this as per-seat pricing but can also apply to device end-points, servers/CPUs, VMs, etc.

Segmenting your customers

Every product is used by different customer segments — whether measured by size of organization, industry segment, geography, or type of individual within an organization. Common pricing tier labels here include “government”, “non-profit”, “academic”, “healthcare”, “small business”, and so on.

As a product matures, you will almost certainly either label or expand your pricing tiers to account for this. Before you jump into this level of differentiation, however, you want to gain more data on usage — are you seeing customers across some set of segments, and are they using the product differently? More importantly, do you see a path to develop differentiation that allows you to target and sustain these segments (or are you just optimizing revenue along these lines)? Some products are designed only for specific segments like education, which allows you to further refine within them: e.g., public, private, post-secondary, etc.

But one customer segment that is almost always special is the engaged technical user. These folks can push a product through an organization when required, or develop custom solutions on your platform that either deliver or enhance the value of your work.

Developers are key in this regard. For any platform-oriented product, it is worth considering how you offer developers the ability to experiment with and use the full product in a development environment at a very low price. One way to accomplish this is to separate out usage-as-development versus usage-as-production, and price accordingly.

* * *

As a new offering with any established competitors, pricing will be the easiest point of attack. And if you are a disruptive product, you want to have the deepest possible understanding of the value you are bringing to the table so you can maximize the initial pricing model. So the most important suggestion for pricing I have here is to wait until the last possible moment to price and announce.

Even for enterprise products, things like round-numbers, 9′s, and discounts all matter. Do keep in mind that discounting will be substantial in enterprise products with direct sales and 50% or more off “list” price is not uncommon (and often required). That’s not an excuse to bloat the price, but it is important for purchasing managers and for empowering your salesforce that you enable a level of customization — and know what variables you are using to do so.

Some say that you can never change or raise your prices once you’re out of the gate. Always keep in mind that once you have customers, price changes or product composition relative to price are never viewed as positive changes, even if you think for some customers you are lowering the price. And when you do change your prices, always offer existing customers time to adapt and grandfather them in (at least). Finally, remember to engineer a product framework that can support pricing flexibility.

Create the model, use the model, but don’t let the model do your thinking. Price carefully!

Designing a user experience for many millions of people is a unique job that a relatively small number of people practice. The responsibility of such an undertaking is immense, stressful, and one that can be all-consuming. Cold sweats, sick to your stomach, and a constant feeling of messing up are the norm for those that take on these challenges.

Everyone starts with simplicity, then what?

At introduction almost every successful product champions simplicity as a design and execution goal. Products are declared simple, minimal, and tailored to specific uses. Almost no one argues against these attributes and when marketing goes to position a tech product, invariably these attributes bubble up to the top of the favorable list. That’s because of the inherent and expected complexity of tech products as a starting point.

At introduction almost every successful product champions simplicity as a design and execution goal.

But where to go next? Tech products that are simple can start off well, but three things exist immediately after launch.

A customer need to address feedback and “fix” things that might be simple but are not quite there yet.

A product need to remain competitive with the products that follow your introduction touting the same simplicity but also do a few more things (reading the reviews of your product will always demonstrate examples of wish lists)

A business need to develop new products that can enhance revenue, margins, or maintain price points in the face of commoditization.

Tech products, particularly software products, are unique in that there is an almost natural tendency to organically add or to absorb features from competitive or adjacent products. Unlike physical hardware products that have COGS and BOM challenges, the incremental cost of software is simply limited to R&D (and operational costs for SaaS). That means when faced with the above existential properties, tech products will get new features pretty rapidly.

These new features will do constant battle with the simplicity of the initial release. Some argue that this is just bloat and invariably ruins products. Certainly from a design perspective this is a massive challenge. It takes enormous discipline. On the other hand, there are very few examples of software-based products that remain static. To remain static in features is to open yourself up to commoditization or disruption—a static target is an easy target.

Example: Palm Pilot

The introduction of the Palm Pilot (http://en.wikipedia.org/wiki/PalmPilot) is a fascinating historic example of simplicity leading to isolation and expiration of a product. The designers of the product did an amazing job building an amazing product. All day battery life, simplicity, specific and purpose-built as the first truly modern and truly mobile productivity tool used by the masses.

I remember in 1998 the Palm Pilot was standard issue for all new MBA students when I taught. Shortly after that time, I recall a panel discussion with one of the original designers of the product. At the time the pitch was overarching simplicity and ease of use. Everyone agreed. Then there was an audience question that changed the dynamic.

Most leading edge folks at this time were carrying Motorola flip phones along with the calendar/notes/contacts in their Palm Pilot. The problem was every time they wanted to make a call, it was a multi-step process that involved looking up a number on the Palm Pilot and juggling the two devices while typing into the phone. While this was vastly easier than going back to your desktop or attempting to pull an 8lb laptop out of your bag, it was a usability disaster.

The question was simply—when could I have all the Palm Pilot functionality on my phone? Lots of words about how you could sync (with a cable, not the cloud that didn’t yet exist), but a hardcore answer about how adding a fifth function to the Palm, a phone, would overload the functionality and make the product too complex and unusable. So the phone would never converge with things like your contacts and calendar.

Honest, that was the answer.

The problem was I was sitting there with my pre-production blackberry merrily connecting in real-time to my calendar, contacts, and email on my Exchange server. It was incredibly clear that the need of a non-converged device with a static copy of some of the important mobile tasks was no longer useful.

A pattern for how things evolve in practice

This challenge in software product design happens time and time again. It is the very nature of disruption. The new product does some things brilliantly well and simply, but is “missing” features people value from an existing product or an adjacent product.

Designers face the choice of adding new capabilities and potentially challenging the beauty of the initial release or facing competition and disruption from new competitors without that same strongly held belief. Marketing, channel, business and pricing can defend against these for a while but ultimately the ease and costs of just adding features in software will win.

The tension between user interface design and the realities and capabilities of software leads to a fairly predictable pattern for how tech/software products evolve. We can think of this pattern as evolution in five stages:

Introduce

Optimize

Deliberate

Succumb

Mature or Renew

Introduce. First you introduce a new product. In your view it is a thing of beauty. Whether you spent 3 years or 3 months, you are convinced it has exactly the right features done exactly the right way, though you know there are ton of things on your “to do” list. Even if you are practicing lean methodologies you are pretty sure you got it right in your heart even though there is a lot of learning to follow. Your design embodies simplicity in design and messaging. Once your product starts to get used and you have the luxury of people relying on your work you begin to see the holes and maybe even misfires in your experience design. Optimize. You have a lot of work to do to reconcile your “to do” list with what actual people using your product. It turns out that what you thought the product was missing is pretty different than what everyone else thought the product was missing. You shrug this off and take the feedback seriously because you have real-world people using your product. Quite often the innovations introduced at this stage are formalizations for how people were using your product. Add-ins, customizations, or just conventions that enhanced usage become the sorts of things you formalize in the product. You very quickly iterate and get to a much more robust, reliable, stable, and usable version of what you had originally envisioned. This becomes the foundation of your product.

Deliberate. Evolving your product at this stage is very fun. While you believe you have a product that embodies your vision, with usage you begin to see broader usage and scenarios as part of your product. There might be third parties that do similar things as you but with a slightly different or much improved take on a specific mechanism you have in your product. Because you have become a leader with your product in “the way” things are done, when you decide to introduce an innovation it comes as a deliberate and thoughtful extension of your experience. Rarely do you see pushback from a broad base of customers when something new is introduced at this stage in your product’s evolution. In fact you often are seen as taking the product to a new level and providing a broader context in which your whole category or class of products should evolve. You are basking in the glow of innovating in the user experience of your space—you have come to define the category and now you’re defining the category to include new elements of user-experience.

Succumb. The feedback your product is receiving is growing, both positive and negative. As your product is used more and more, the usage scenarios and skill-levels of your customers change dramatically. Your product is used in ways you could never imagine and customers are asking for your product to do things you would never have imagined they would ask. If your product becomes essential for some scenario, then people will ask for your product to take on attributes and features of other familiar products (if you share photos, then you’re likely to be asked for photo editing for example; if you communicate, then before long you will be asked for rules and filters; if you type then you will be asked for more and more formatting, spelling, and entry features). If during the previous stage you really believed you had achieved a level of almost Bauhaus minimalism about your product, this is the stage when you feel a relentless pressure to add more. You’re hearing from customers, pundits, press and more about the must-haves and must-dos. This is by far the most stressful time in product development—you can’t just step back and not change things, but you constantly feel like changes are all part of a slippery slope. You constantly find yourself struggling between the minimalist view of the product you have been perfecting and the need from different types of customers for seemingly contradictory types of features. It is why at this stage as a designer you feel like you are succumbing to feedback and introducing features that you know some people will value and others will see the other way or maybe just not even notice—you feel like you’re bloating your simple product. These are the hardest decisions to make and are the price of success. If you try to hang on to simplicity, you will see competitors pass you by or you’ll see engagement stagnate.

Mature or Renew. The natural evolution of most every product involves a fairly long period of incorporating features in the previous stage—you add some new things, incrementally change some existing things, and in general are working to find a path through the maze of contradictory feedback and complex market needs. Over time your product will develop a different personality and unique set of assets, but is going to be far from that original version. While you might have hundreds of millions of customers, at some point the experience of your product is such that the market collectively demands an overhaul. The challenge of course is that the collective market is very different than any one individual or an organization (for enterprise products). The latter two, unlike the aggregate view of the market, do not necessarily embrace change. This point in the evolution of your product is where you face disruption—the telltale signs of reduced engagement, alternative tools and experiences, or just a lack of energy in your ecosystem are signs that your product is overdue for improvements, new features and more. Software affords you the chance to reimagine your product and presents you with the opportunity at this time. Of course with hundreds of millions of customers, a very large number in absolute will not want any change at all. That’s why this stage of evolution is a choice—you can incrementally mature your product design or you can choose to renew your product design. These two are really that very rare of “either-or” choices. As a product designer, you will be faced with a big set of decisions when you have to design what comes next for a mature product. Be careful what you wish for you as your design might be so successful that one day you face the prospect of redesigning it in the context of a significant customer base.

Products reaching a mature stage face a fork in the road.

Products reaching a mature stage face a fork in the road—one where you can renew or watch your product slowly shrink in relevance. This might seem dramatic, but the velocity of change in the technology world combined with the ease of switching shows that one day what might seem like “the way things are done” will risk becoming “the way things used to be” much sooner than expected.

Disruption and technology transitions are part of the context of designing products and experiences.

From search home pages, to photo editors, word processors, operating systems, music players, and more these stages are all part of the evolution of a user experience. The beauty of software interface is that unlike the physical world you are given the chance to move things around, change, and improve the product for little to no manufacturing cost, but at each stage you have to work through the cost of change to customers.

No other product in history has had the ability to be used by so many yet be so flexible in how it is used.

Simplicity in design is what we all strive for and often how we begin a product lifecycle. With success, maintaining simplicity over time while also remaining competitive is where design and product management are really challenged.

The “soft” of software makes this challenge even more acute and the pressures to add or change a product even more difficult to resist.

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Every time the topic of tablets versus laptops (and or smartphones) comes up, we end up in another endless debate about scenarios, consumption, productivity, keyboards, mice, screen size, multitasking, and more. In every case the debate centers around the core uses of “PCs” today—and PC is in quotes because the PC itself is a remarkably flexible device that has morphed over the years into many form factors. People study run-rates and trends and try to predict the demise of one over another and so on.

Disruption

Every disruptive innovation shares (at least) two characteristics. First, the newly introduced technology is more often than not inferior in some key dimensions, while superior in some dimensions that in the current context seem to matter more. Second, despite much consternation, the technology being disrupted is almost certainly going to remain a vital part of the landscape in some form or another for quite some time—either simply because of the long tail of legacy or because it serves a function that is not replicated at all.

What changes, however, is where the emphasis takes place around an ecosystem and with a, usually, broader set of customers. The ecosystem is not a static world and it too plays a vital role in the transition. Where the ecosystem is investing is always a leading indicator of where the transition is heading.

We can look at transitions such as entertainment (theater, radio, film, TV, video, streaming) or transportation (horses, boats, trains, cars, planes) or even storage (removable, hard drives, USB, flash) as examples of where these traits are demonstrated. Computer user-interface moving from characters to GUI to touch shows these traits as well.

The introduction of the iPad, and the modern mobile OS (and smartphones) in general, shows many of these characteristics. The modern OS in combination with new hardware has many characteristics that separate it from the PC era including sealed case (non-extensible hardware), ultra-low power consumption, rich embedded graphics, touch user interface, app store, exclusively wireless connectivity, and more. This is the new platform which is where so much innovation in apps is taking place.

Here is where the debate starts—some of those features are either not valued or true limitations when compared to the vastly more capable PC model. There’s no doubt about that. It is just a fact. Not only does the PC have a wider range and more “powerful” hardware options, but it also benefits from 20 years of software that drives a vast array of processes, devices, workflows, and more. Tablet hardware is still immature relative to “PC standards” and apps do not seem to cover so many of the existing PC scenarios (even if they cover scenarios not even dreamed of or possible on PCs).

Hardware and Software

Two things are still rapidly changing that will account for a much broader transition from the dichotomy of tablet OR laptop today to a world where tablets with modern operating systems begin (or have begun) to replace many scenarios occupied by laptops.

We will soon start to see more innovation in tablets.

First, the hardware in tablets will benefit enormously from Moore’s law. While the pace of changes in smartphones (screen size, cpu, gpu, specs) has been faster than we have seen in tablets, my guess is we will soon start to see more innovation in tablets. In terms of both form factor and specs, tablets have been reasonably static since introduction. There are give or take two screen sizes and fairly modest spec bumps. My guess is that since the same vendors make both smartphones and tablets, the vast amount of energy has been focused on smartphones for now (just as when the PC industry shifted innovation from desktops to laptops and then swung back again to focus on all-in-ones). I suspect we will start to see more screen sizes for tablets and more innovation in peripherals and capabilities, along with specs that benefit from the rapid progress in Moore’s law.

Second, all the hardware innovation in the world isn’t enough to drive new scenarios or even more dramatic replacement scenarios. The amazing innovation in software on smartphones shows what can take place when developers of the world see potential and tap into the power of a new platform.

Two Examples

I wanted to offer two examples of where the transition to tablets has been surprisingly “behind the scenes” and really out of sight, but very interesting from a technical perspective.

Many of us find ourselves in the AT&T store all too often because we’re adding a line, replacing a phone, getting a new SIM or whatever. Over the past year or so, AT&T has aggressively rolled out iPads to replace the in-store PCs that were used for customer service. This is a massive software challenge. The in-store PCs had point of sale capability, bar code readers (for SIMs), and a large array of apps that drove the entire customer engagement (some of these apps ran Windows OpenStep believe it or not).

He kept telling me how frustrating it was to deal with the lack of capabilities of the new tools.

If you happened to visit the store during the early stages of the transition, you would have been able to sense the frustration with the account managers. There were many unfamiliar elements to the new apps on the iPads and worse there seemed to be many things that the desktop tools could do that the iPad apps could not. For example, I got caught trying to merge two accounts and the rep was forced to call the regional call center to do the work and while on hold he kept telling me how frustrating it was to deal with the lack of capabilities of the new tools. At the same time, the iPad had cool integration with portable bar code readers, the reps could easily show you what is on the screen to verify information (like picking a new phone number) and so on.

The transition is well underway now and I don’t think folks notice any more.

Today I spent a few hours with my friendly Comcast technician while he diagnosed something faulty with our cable signal. While he has a fancy signal meter, most of the work he does is actually adjusting things via a remote app on an iPad. Comcast technicians (as I learned, the ones in vans but not “bucket trucks”) were recently issued iPads. Sure enough during the visit he was on the phone to a central office and was saying “I have an iPad now and so without my PC I’m not able to get that measurement”.

The tech said, “I have an iPad now and so without my PC I’m not able to get that measurement”.

I was having flashbacks to the frustrated AT&T reps. Turns out this technician used to have a PC and ran the same software as the tech at the other end of the phone (and in the bucket trucks). They are moving techs to iPads because they do not have to carry chargers; they are more resilient when dropped; and the integrated Verizon connectivity all make for a far more convenient service tool. Plus things like entering the MAC address become much easier with bar code readers and the ability to use a much more agile form factor, as one example.

The conversation I had with a tech (always the anthropologist) was fun. He said they have a whole tracking and feedback process that helps them to prioritize what features the software folks need to add to the apps being used in the field. Turns out, I’m guessing, they built some pretty elaborate desktop software that did just about everything since it was used on the ground and in the data center, but they likely had little understanding of just what was used and how often. The creation of new apps will drive a new level of customer service and technician capabilities, even if there are some hiccups along the way.

Broader Implications

These two examples are hard core line of business tools. We’re seeing the same thing in the line of business tools used by folks at all sorts of companies big and small. The new generation of mobile-first SaaS tools make it far easier to create “documents” for sharing and collaboration, access business information, or participate in business services from CRM to accounting to benefits. The tools these are supplanting were developed over a decade and have tons of features and optimizations but lack the mobility and internet access that is so highly valued in a modern workplace. The transition will have some hiccups but is happening.

Along with these tools, so many of the tools for creation and production that are PC based on being reimagined and recast for modern work. We can see this revolution in Adobe’s work on photography for professionals with tablets, Paper and Penci from fiftythree, and of course the long list of productivity tools we talk about often on this blog. These tools do less, but they also do more. When combined with tablets and smartphones on modern platforms they enable a new view on the work and scenarios.

The characterization of tablets as “neither here nor there” or “in between tablet and a laptop” misses the reality that the modern nature of tablet platforms—both hardware and software—will drive innovation and subsequent transition for many many scenarios from traditional laptop platforms to tablet platforms. We’re in the middle period where this is happening—just as when people said cars were too expensive for the masses and would not be mainstream or when the GUI interface lacked the hardware horsepower and “keystroke productivity” to replace character based tools.

New hardware and new software will surface new capabilities and scenarios not previously possible (or imagined).

The traditional laptop will power hundreds of millions of endpoints for a very long time. But as the two examples here show, even in the most hardcore worlds where device integration meets custom software, there is a transformation and transition taking place. New hardware and new software will surface new capabilities and scenarios not previously possible (or imagined). It won’t be smooth and it won’t please everyone immediately, but it is happening–just as both of those same scenarios transitioned from character to GUI.

It really is about the software. That change is happening all around us.

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Many companies I work with are creating tools to enhance workplace or personal productivity depends on the “bring your own” or BYO movement to get their product bootstrapped or to just get in the door. Once in the door, the product design challenges of BYO begin.

After those first customers they count on broader, viral, usage within a company to drive revenue growth. While they likely built your product with the notion that “customer equals purchaser” once this changes to “business equals purchaser”, you are going to get a whole different level of feedback.

My guess is most every app and service is both excited and terrified to get to the moment when there is a choice between cozying up to IT and risking alienating your newly minted enthusiasts. It is, by all accounts, a choice. Most I talk to feel like they will navigate this by focusing on customers first and hope to overwhelm the negatives often associated with IT.

Walk that fine line to enable your product to be at some state of détente with IT.

Get over it. Not entirely of course, but there’s some subtly at play. At some point you are going to face a fork in the road; navigate enterprise management or face existential challenges. You can choose to be managed without your cooperation or worse blocked and literally unable to access important assets that your product requires. Alternatively, you might also choose to walk that fine line to enable your product to be at some state of détente with IT.

I know that sounds awful and while I am sure there are some exceptions (in both organizations and products), this is by far the most normal path. It doesn’t have to be a sell-out, but when done well you can bet that you’re going to be in great position to advance the state of the art and contribute positively to enterprise infrastructure.

In fact, as I was typing this post there was this thoughtful article on putting customers first in business apps.

The essence of BYO is that one can easily acquire and begin to use a device, product or service without IT involvement of any kind. You might need to know the server name for email or maybe how to export data from a line of business system, but otherwise the device or app can tap into the necessary resources without first going through IT and/or purchasing. Even better, these tools likely make it very easy to share information with coworkers or collaborators at other organizations. All folks need is a free email account as a gateway to sharing.

Of course all this ease of use has at least two main IT downsides.

First and foremost is security of the network overall. Devices on a network, running code of unknown origin, tapping into servers is a big risk. What can be transmitted by those devices and apps concerns IT. Inbound PDF attachments or simple USB sticks seemed harmless enough at first until they became a massive vectors.

Second, the data and servers being accessed contain information that you need to use but do not own. These are corporate assets and managing and tracking those is a fiduciary responsibility for IT and in some cases such as HIPPA or SEC regulations the penalties for messing up are severe. That simple case of putting something like logmein or internet messaging can potentially become a significant liability.

My own personal experience “helps” me to see this pattern. Working on Microsoft Office in the early days, we were very clearly a “bottom up adoption” product. People were going to stores and buying the product with their own money and creating amazing looking documents they would bring into work (often on PCs bought with personal funds at those same stores). Pretty soon groups of people were using corporate expense accounts to acquire “5 packs” of Office. Then over time, Microsoft grew an enterprise sales force that could offer large deals.

That’s the sales side, but on the product side the management and deployment of the product (deployment being decidedly old school now) became unwieldy. As a result, the late 1990’s saw a movement to reduce so called “TCO” or total cost of ownership. TCO mandated a vast number of controls across the entire platform and from that grew a whole generation of features from the registry, to logon scripts, to the, now, dreaded “corporate desktop”. TCO reached an epic volume as it described owning a $1500 PC as a $20,000 per year expense to companies.

While I was dragged kicking and screaming to deliver features that I felt could be used to make the product worse, the reality was at the time this is also what grew the business. The tradeoffs, debates, and design choices were all very real.

In a startup, these choices are much more existential than they were for us back then. Given the hurdles to overcome to become a widely used tool, there’s a good chance you might want to be more proactive about how your product fits with BYO.

As a product manager facing this decision point, you have this intense belief that IT wants to make your product worse, harder to use, and to basically ruin your good work. The fact that so few built-for-IT products have the design sense, usability, or approachability of apps and services focused on consumers only reinforces this.

While there are dozens of potential traps and pitfalls that can result in a product falling out of favor, it is a good idea to consider a few important design choices you can make now that will enable your consumer and BYO product to be viewed through a positive light. It is important that these design choices be considered product assets rather than object handlers.

Ultimately, if you design a product to be used in business where you can charge more it should be better, not worse, than a product used in the consumer space. It used to be that the business versions of products charged more so they could do less and be harder to use and acquire. The SaaS and App models invert this. Phil Libin, founder of Evernote, says it best when he says “business class means superior and we challenge ourselves to make our product better when you upgrade to the business version”.

Business class means superior and we challenge ourselves to make our product better when you upgrade to the business version. — Phil Libin, Evernote

The following are five product areas to consider when it comes to making a product business ready:

Identity and authentication. The first thing a business needs from a product is that employees should sign into the product using the business-owned credentials (such as Active Directory). This allows IT to send a clear message to the individual that they are operating in a business context. This needs to include authentication mechanisms used at the organization and enforce associated password policy and security. At the same time, you owe it to your own ease of use that stand-alone credentials can be used, especially for collaboration. How you manage the bridge and the commingling of credentials depends on the flow of assets through your product.

Network usage. IT organizations guard their network across several dimensions. Platform providers make it possible to use VPN (secured with enterprise credentials) or other access methods for WiFi. Your product should use well-known/documented ports and be clear with IT about what travels over the wire and in what volumes. Techniques like polling, using obscure ports, and more will only hinder your product usage.

Changes related to re-orgs. In an organization of any size employees quit, vendors are fired, or staffing on a project just changes. If your product is used across a group of people then IT will want to be there to assist in supporting these changes within your product. How can content remaining on devices be recalled or how can a person lose permissions to content are important design choices you can make in building a product that it BYO friendly.

Content “ownership”. If your product creates or consumes content then your product owes it to IT to participate in the content management responsibility of the organization. At one extreme, the clipboard exists on IT apps and in every other app so you can dodge this question by saying it isn’t your exclusive responsibility. On the other hand, by having mechanisms for IT to have some telemetry and actions on content then you invite your product to be desired by IT, not just challenged. More than any other area this is where many potential solutions exist and many possible ways to make the product worse or upgrade to business class.

Features. Products are more than editors and tools for sharing, so there are going to be unique features in your product. Some of those unique features will intersect in ways that might run counter to a business policy. Sometimes this could be simple such as an ability to generate email notifications which might be frowned upon. Other times it might be complex as a feature runs directly afoul of regulatory compliance. At some level there are going to be features you give IT permission to enable/disable. No area is more challenging of course and thinking hard about the design tradeoffs when a feature might not be there is important. A feature like password protection might be great for consumers but becomes a huge problem for IT when personnel change. Alternatively, you might have a feature that becomes a “must use” and if that’s the case you want to consider how something you might have thought of as optional becomes permanent. For example, you might optionally support a confirmation email when adding new people to a project and IT might require that email be sent to produce a record of access changes.

There are many other avenues to consider. I think it is possible to make a product better when enabled for business even if you start from the very solid business and design foundation of customer first.

The modern mechanisms for administering IT control are vastly superior to the PC era mechanisms. The idea of running arbitrary code, tweaking every aspect of the UI, or installing add-ins that alter base functionality of a product are long gone. These approaches showed how great products can be made unfamiliar, hard to use, and less robust even with the best intentions Worse, the mechanisms developed to enable these approaches proved to be vectors for security problems, performance challenges, and in general sources of unpredictability and unreliability.

Today’s devices support state-based management, app stores, and security contexts that greatly improve the ability to deliver upgraded business features. To many, these tools are not yet enough. The platform vendors are carefully balancing the approaches they introduce with the known downsides by the old approaches.

There’s a disruption in the way devices, apps, and information are managed, but that does not necessarily mean an elimination.